Analysis-ESPN-NFL deal faces regulatory hurdles

The Star

3 days ago

LOS ANGELES (Reuters) -The National Football League's deal with Walt Disney in which it will gain an equity stake in ESPN in return for prime media assets is expected to face scrutiny from the U.S. Department of Justice, according to legal experts and industry sources.
The agreement, announced late Tuesday, involves Disney's ESPN acquiring the NFL Network and other media properties in exchange for the league receiving a 10 percent stake in the sports network.
Andre P. Barlow, a partner at Doyle, Barlow & Mazard, said the transaction "surely raises competition concerns," because it could potentially give Disney greater control over televised sports carriage and reducecompetition.
"The deal could potentially result in higher costs for consumers, as Disney's dominance in sports media could limit options and drive up prices for streaming services or game access," Barlow said.
The Justice Department is expected to conduct a substantive review of the new ESPN-NFL transaction, according to one source familiar with the matter who spoke on condition of anonymity. Another source said obtaining U.S. antitrust clearance could take up to 12 months.
ESPN and the NFL declined comment.
The expected review comes as the Justice Department's Antitrust Division is examining a separate deal Disney reached earlier this yearto acquire a controlling stake in the sports streaming service Fubo TV. The division demanded further information from the companies in March to examine whether the deal would unduly concentrate the market for sports streaming.
Meanwhile, the issue of rising costs for fans as games migrate to streaming services has reached the Senate, where the Commerce Committee held a hearing in May.
"In an era of deep partisan division, sports might be the most powerful cultural unifier we have," said Republican Senator Ted Cruz of Texas, who chairs the committee, noting it brings together Americans whether they're watching from their couches or in the stands. "But those millions of fans are asking a simple question: 'Why does it seem to be getting harder -- andmore expensive -- to just watch the game?'"
John Bergmayer, legal director of the non-profit Public Knowledge, voiced the same concerns.
"The proliferation of streaming services -- and the fragmentation of content between them --means that the costs of watching streaming video are rising, and for many people can approach what they were paying on their cable bill," said Bergmayer in testimony to the committee. "Some viewers feel like they finally broke free of the cable bundle only to watch it re-forming (before) their eyes."
ESPN STREAMING SERVICE
The NFL has done outreach to 30 congressional offices to discuss the terms of its deal with ESPN and how it would result in greater consumer choice, according to one of the sources.
Under the agreement, ESPN would be able to add the NFL Network to its breadth of sports programming and incorporate it as part of its ESPN-branded streaming service. ESPN also plans to merge its fantasy football offering with that of the NFL.
ESPN also will be able to distribute the NFL's RedZone to cable and satellite TV distributors, along with its other channels. The NFL will retain streaming rights to NFL RedZone, which is available online through YouTube TV.
Disney won swift approval for its $71 billion acquisition of 21st Century Fox's entertainment assets in 2018, during President Donald Trump's first term, though it was required to divest Fox's 22 regional sports networks to address competition concerns.At the time, Trump called to congratulate the Fox'sRupert Murdoch on the deal.
"It was worked out in record time," said Barlow, adding that this time around, he expects the Justice Department "to take a close look before approving the deal."
One recent media deal, the $8.4 billion merger of Paramount Global and Skydance Media, became bogged down in a lengthy regulatory review, as President Donald Trump sued Paramount, claiming the CBS News program "60 Minutes" deceptively edited an interview with his Democratic rival for the White House, former Vice President Kamala Harris.
The Federal Communications Commission approved the transaction within days of Trump receiving a $16 million settlement, though FCC Chairman Brendan Carr said the civil suit and regulatory review were unrelated.
Politics could complicate the deal. Some sports industry insiders pointed to Trump's threats to interfere with a deal to build a new football stadium in Washington, D.C., unless the local NFL team, now known as the Commanders, changes its name back to Redskins, which was abandoned after decades of criticism that it was a racial slur.
ESPN is currently 80 percent owned by ABC Inc as an indirect subsidiary of Disney, with the other 20% owned by Hearst. If the deal is approved, ABC's stake would drop to72 percent andHearst would fall to 18 percent to grant the NFL a 10 percent stake.
(Reporting by Jody Godoy in New York and Dawn Chmielewski in Los Angeles; editing by Kenneth Li and Nick Zieminski)